The benefits of salary transparency

On a democratic way of cultivating excellence

The common model is outdated

In the common model of employee compensation, employers view people as resources and attempt to maximize information asymmetries and to suppress any consideration of fairness when setting salaries.

People are used to this, and many consider it normal and acceptable. However, it is quite counterproductive for both companies and employees. I’ve described this model at length and provided a critique for why it is so counter productive in this piece below.

On the lack of transparent salaries and career progression in the workplace

Fortunately, this is not the only way. I have experience with a different way of doing things that I consider far superior. Read on below.

A democratic approach to producing excellence

The model I propose views people as allies, shares information about salaries and progression, and avoids personalized negotiations to maintain a fair framework for the whole company.

I developed this model while building my company, alongside our team members. After about five years of experience with these general principles, and a degree of evolution, I am convinced it is a far better model than the current antagonistic one.

I encourage managers and business owners to transition towards this model, as well as employees to raise questions that can help build awareness of this more effective, more human relations where we promote skill acquisition and personal and organizational improvement, rather than backbite for the spoils.

The principles are quite straight forward:

1. Create a clear levels system connected to salaries.

Use the interview process to decide whether a candidate has what it takes, and if they do, to determine the level they could start at. Thus, you can now make job offers on the basis of clear levels, with no room to negotiate. This means everyone is treated fairly.

This is harder to do than it sounds. Firstly, it is probably important to split the evaluation into several core capabilities that can be assessed with some depth. What these capabilities are may depend on your specific business. However, there are a few general areas that any good organizations should cultivate. For instance, leadership, management, communications, as well as the specific functional area the person is working in are dimensions that companies would do well in evaluating.

2. Institute a formal review process

The formal review process serves to make progression more equitable and less subject to “the squeaky wheel gets the grease” dynamics. The review process is probably the greatest challenge, as discussing improvement areas with team members and sharing the rationale for withholding specific promotions, or promoting but not as much as the team member desired, often leads to conflict, dissatisfaction, and even a sense of unfairness and alienation from the company.

Nonetheless, if everyone is allowed to contribute and make it better, and if the principles continue to be those of fairness and the intent to help everyone improve and get better at what matters, people will come around and see the good sense of the process. This highlights the benefit of co-creating the process along with team members, rather than dictating from afar.

3. Create financial transparency

Start by sharing the salaries associated with each level of the capability grid (from #1 above). This will help giving the team a sense of skill and salary progression. They will also have the appropriate information to make good decisions on their career or possible job changes. What this means is that the team should know what their income will be in a few years if they continue growing and performing with expectations.

I think it is wise for the company to plan out a business model that can support increased financial compensation. The company should also relate salary growth to the appropriate improvement in skills and the gained experience. This sets a clear improvement trajectory for all company employees, and starts producing a virtuous cycle where more effective work produces better results and translates to greater compensation. People also massively enjoy having clarity on how they are getting better and achieving mastery.

Although thoughtful design can massively help performance and retention, it is chiefly about respect and cultivation for the people who entrust their professional career to the company. It is unfortunate that companies do the bare minimum, hoping their employees don’t get better offers elsewhere. Instead, we must see the company’s responsibility to provide a working environment that doesn’t merely extract value out of people, but rather invests in the company as a community and cultivates talent.

Here are the many benefits:

1. Make valuable behaviors clear. While end results seem obvious (greater company success), the expected contributions for each level and each role are nebulous. The hazier these are, the harder it will be to help coach people on a forward progression.
2. Develop people’s skills faster. Once valuable behaviors become clear, people will find it easier to train and practice specific skills that hold them back, and hinder company results.
3. Improve company retention and good will. Companies truly are political entities, in that they depend on a belief of trust and legitimate authority. By building a sense of fairness, you improve retention.
4. Act with integrity and avoid bias by design. By having a transparent and clear framework, it is easier to avoid the common pitfalls of bias that arise when the key decisions are made on an ad-hoc basis.
5. Make company leadership easier and self-sustaining. By creating transparency and drawing team members in to help design the evaluation system, this becomes less an imposition on everyone, and more a shared social contract. The process of defining the evaluation system helps build shared ownership, and involves others in continuing the design and improvement of the system.

Ideas of innocence and of experience

It would be one thing if these claims were made from the sidelines, critiquing the way salaries and promotions occur in companies but driven by pure innocent and naive idealism. After all, this is the retort of the worldly cynic — that heavy-set character with a furrowed brow, a fat bank-account, and the inner disappointment of one who has constantly betrayed the sense of yearning and wonder of his younger self.

But I am not that person, and neither should you be. It doesn’t end well for him and other boomer folk. Perhaps this cartoon dramatizes what’s in store for us if we continue in this way:

Instead of innocence, these observations have come from experience while not surrendering important ideals. After more than a decade working with large and small companies, being an employee myself and also a business owner, I know there is wisdom here:

• As an employee I learned how random, ad-hoc and unstructured most salary progressions are.
• As a business owner, I decided that an antagonistic relationship that most businesses establish acts as a terrible corrosive which either dissolves trust or prevents its growth among the team members.

I experimented with these principles first-hand, and have been privileged to witness the pleasant work environment, the continued retention, and the culture of ownership that has grown at my workplace.

Try the path of transparency, and let me know what doubts and challenges you come across.